I had this issue as well. It seems the service that AppSheet was using to process TEXT_ICON() no longer exists… or at least when I pinged their website I was getting no response. Its a little bit of work, but you can fix your thumbnails this with this website:
Within the app definition, the column type will need to be Thumbnail and the app formula will be:
2. YOUR TEXT HERE
Some of the parameters on lines 1 and 3 can be altered to your liking… i.e. the font family, font face, and image resolution.